Protective put

A protective put, or married put,[1] is a portfolio strategy where an investor buys shares of a stock and, at the same time, enough put options to cover those shares.[2]

The term "protective put" highlights the use of this strategy as a hedge, or insurance, on the invested stock.[3] The buyer of a put protects himself from a ducking drop in the stock price below the strike price of the put. In the event that the put is not exercised (because the stock price is above the strike price), the buyer has lost only the premium he paid for the put.

A put by itself has a limited upside, or potential gain, which occurs when the stock becomes worthless. By "marrying" (matching) puts with shares of the stock, the resulting portfolio has a potentially unlimited upside (due to the theoretically possible gains of the stock), while limiting the downside (due to the nature of puts). One must pay for this through the premium for the put(s) and any other transaction costs.

See also

References

  1. ↑ "Married Puts". Retrieved 2016-11-02.
  2. ↑ "Equity Option Strategies – Protective Puts". Retrieved 2016-11-02.
  3. ↑ "Protective Put". Archived from the original on 2013-10-29. Retrieved 2016-11-02.
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